Can the luxury property market pick up in the second half of the year?

Primary sales volume have crashed after the 2016 peak due to the absence of large-scale launches.

Hong Kong’s muted luxury property market may face mild growth prospects in the latter half of the year as developers may hold back bidding and speed up existing sales to avoid the brunt of the government’s vacancy tax. 

Primary sales volume of luxury properties have been remarkably strong in past years particularly in 2016 amidst robust sales for popular projects in Mid-Levels like 55 Conduit Road, The Morgan, Cluny Park and Alassio and Arezzo.

However, a lack of large-scale launches have caused primary sales volume to decline dramatically since then, according to real estate consultant Savills, although a number of high-profile primary projects such as Mount Nicholson have been a positive sliver of light for the market.

Rents for posh apartments have also slowed to a measly 1% in Q2 as a number of job losses freed up luxury home stock.

Leasing costs for posh apartments on Hong Kong Island fell to 0.6% in Q2. Southside/Shouson Hill (2.8%) recorded the largest rental growth in the Hong Kong Island luxury apartment market, followed by Mid-Levels (0.3%).

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The situation is further aggravated by the government’s vacancy tax policy which imposes special rates on vacant units that will be collected annually at 200% of the rateable unit value or around 5% of the property value.

Developers may adopt a more cautious pricing strategy in new luxury launches to dispose of all their stock and may hold back site bidding to offset the additional development risks of the tax, Joseph Tsang, managing director at JLL said in a previous statement.

“The introduction of the vacancy tax and the amendment to pre-sale consent will only affect the luxury market,” Tsang added. “Even if developers speed up the sales of luxury projects, it won’t help average home seekers. The new tax will not trigger a price fall in the property market, but price growth will slow.”

Nonetheless, things may be looking up for Hong Kong’s luxury developers in the near term as Savills forecast luxury supply on Hong Kong Island to be concentrated in the second half of the year. This includes the completion of three prominent projects including 15-18 Stubbs Road (53 apartments and 19 houses) and 21, 23 & 25 Borrett Road (181 apartments), both located in Mid-Levels, as well as 8 Deep Water Bay Drive (52 apartments and 2 houses) in Southside.

“With greater numbers of units potentially subject to the vacancy tax, price growth in the luxury segment in Kowloon/New Territories could slow but is unlikely to reverse,” added Savills.

Photo from Wpcpey - Own work, CC BY-SA 4.0